1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SHEILA VAN DUYNE ROMERO (NV State Bar No. 9899) [email protected]SIMON ARON (CA State Bar No. 108183) [email protected]SUSAN K. SEFLIN (CA State Bar No. 213865) [email protected]WOLF, RIFKIN, SHAPIRO, SCHULMAN & RABKIN, LLP 5594-B Longley Lane Reno, Nevada 89511 Telephone: (775) 853-6787 Facsimile: (775) 853-6774 Special Litigation Counsel for Chapter 11 Debtors UNITED STATES BANKRUPTCY COURT DISTRICT OF NEVADA * * * * * In re ALFRED J.R. VILLALOBOS, an individual,, □ Affects this Debtor ■ Affects all Debtors □ Affects Arvco Capital Research, LLC □ Affects Arvco Financial Ventures, LLC □ Affects Arvco Art, Inc. Debtors. Case No. 3:10-bk-52248-gwz (Chapter 11) Jointly Administered with: 10-52249 Arvco Capital Research, LLC 10-52251 Arvco Financial Ventures, LLC 10-52252 Arvco Art, Inc. Adv No. 3:13-ap-____-gwz COMPLAINT FOR: 1. TURNOVER OF PROPERTY OF THE ESTATE; 2. OBJECTION/DENIAL OF CLAIMS; 3. BREACH OF ORAL CONTRACT; 4. BREACH OF WRITTEN CONTRACT; 5. INTERFERENCE WITH CONTRACT; 6. QUANTUM MERUIT; 7. EQUITABLE INDEMNIFICATION; 8. CONTRACTUAL INDEMNIFICATION; AND 9. AN ACCOUNTING ALFRED J. R. VILLALOBOS, ARVCO CAPITAL RESEARCH, LLC, ARVCO FINANCIAL VENTURES, LLC, and ARVCO ART, INC., Plaintiffs, vs. APOLLO MANAGEMENT, L.P., APOLLO MANAGEMENT VII, L.P., APOLLO INVESTMENT FUND VII, L.P., APOLLO OVERSEAS PARTNERS (DELAWARE 892) VII, L.P., APOLLO OVERSEAS PARTNERS (DELAWARE) VII, L.P., APOLLO OVERSEAS PARTNERS VII, L.P. APOLLO CREDIT OPPORTUNITY MANAGEMENT LLC, APOLLO CREDIT OPPORTUNITY FUND I, L.P. , and Does 1-20, Defendants. Case 13-05017-gwz Doc 1 Entered 04/15/13 12:00:32 Page 1 of 27
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SHEILA VAN DUYNE ROMERO (NV State Bar No. 9899) [email protected] SIMON ARON (CA State Bar No. 108183) [email protected] SUSAN K. SEFLIN (CA State Bar No. 213865) [email protected] WOLF, RIFKIN, SHAPIRO, SCHULMAN & RABKIN, LLP 5594-B Longley Lane Reno, Nevada 89511 Telephone: (775) 853-6787 Facsimile: (775) 853-6774 Special Litigation Counsel for Chapter 11 Debtors
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADA
* * * * *
In re ALFRED J.R. VILLALOBOS, an individual,, □ Affects this Debtor ■ Affects all Debtors □ Affects Arvco Capital Research, LLC □ Affects Arvco Financial Ventures, LLC □ Affects Arvco Art, Inc.
Debtors.
Case No. 3:10-bk-52248-gwz (Chapter 11) Jointly Administered with: 10-52249 Arvco Capital Research, LLC 10-52251 Arvco Financial Ventures, LLC 10-52252 Arvco Art, Inc. Adv No. 3:13-ap-____-gwz COMPLAINT FOR: 1. TURNOVER OF PROPERTY OF THE
ESTATE; 2. OBJECTION/DENIAL OF CLAIMS; 3. BREACH OF ORAL CONTRACT; 4. BREACH OF WRITTEN CONTRACT; 5. INTERFERENCE WITH CONTRACT; 6. QUANTUM MERUIT; 7. EQUITABLE INDEMNIFICATION; 8. CONTRACTUAL INDEMNIFICATION;
AND 9. AN ACCOUNTING
ALFRED J. R. VILLALOBOS, ARVCO CAPITAL RESEARCH, LLC, ARVCO FINANCIAL VENTURES, LLC, and ARVCO ART, INC.,
Plaintiffs,
vs. APOLLO MANAGEMENT, L.P., APOLLO MANAGEMENT VII, L.P., APOLLO INVESTMENT FUND VII, L.P., APOLLO OVERSEAS PARTNERS (DELAWARE 892) VII, L.P., APOLLO OVERSEAS PARTNERS (DELAWARE) VII, L.P., APOLLO OVERSEAS PARTNERS VII, L.P. APOLLO CREDIT OPPORTUNITY MANAGEMENT LLC, APOLLO CREDIT OPPORTUNITY FUND I, L.P. , and Does 1-20, Defendants.
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ALFRED J. R. VILLALOBOS, ARVCO CAPITAL RESEARCH, LLC, ARVCO
FINANCIAL VENTURES, LLC, and ARVCO ART, INC., the jointly administered chapter 11
debtors and plaintiffs herein, hereby allege as follows:
Nature of the Action
1. This is an action against Defendants seeking, inter alia, (a) turnover of property of
the estate, (b) objection to claims filed and/or asserted by Defendants against the Debtor(s), (c) for
breach of oral contract, (d) breach of written contract, (e) interference with contract, (f) for
quantum meruit, (g) for equitable indemnification, (h) contractual indemnification, (i) for an
accounting, and (j) for damages.
Jurisdiction and Venue
2. This Court has jurisdiction over the parties and the claims set forth in this matter
pursuant to 28 U.S.C. §§ 151, 157 and 1334.
3. The statutory predicates for this adversary proceeding include, without limitation,
sections 105, 541, 542, 544, 545, 550 and 551 of title 11 of the United States Code (the
“Bankruptcy Code”), and Rules 7001(1) and 7001(2) of the Federal Rules of Bankruptcy
Procedure (the “Bankruptcy Rules”).
4. This adversary proceeding arises in the following bankruptcy cases pending in the
United States Bankruptcy Court, District of Nevada (the “Bankruptcy Cases”): (a) In re Alfred J.R.
Villalobos, Bankr. Case No. 3:10-bk-52248-gwz; (b) In re Arvco Capital Research, LLC, Bankr.
Case No. 3:10-bk-52249-gwz; (c) In re Arvco Financial Ventures, LLC, Bankr. Case No. 3:10-bk-
52251-gwz; and (d) In re Arvco Art, Inc., Bankr. Case No. 3:10-bk-52252.
5. On June 9, 2010 (the “Petition Date”), ALFRED J. R. VILLALOBOS, ARVCO
CAPITAL RESEARCH, LLC, ARVCO FINANCIAL VENTURES, LLC and ARVCO ART,
INC. (collectively, the “Debtors” or “Plaintiffs”) filed voluntary petitions for relief under chapter
11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy
Court for the District of Nevada. On July 12, 2010, the Bankruptcy Court entered its Order
Authorizing Joint Administration for all four Debtors, which authorized the joint administration of
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the Debtors under In re Villalobos, Bankr. Case No. 3:10-bk-52248-gwz.
6. On April 1, 2013, the Bankruptcy Court entered an order (the “Confirmation
Order”) confirming the Debtors’ Corrected and Revised First Amended Plan of Liquidation
(together with any and all amendments thereto, all exhibits and schedules thereto and all
documents incorporated by reference therein the “Plan”)[Doc. No. 1674]. Also on April 1, 2013,
the Bankruptcy Court entered its Findings of Fact and Conclusions of Law in Support of Order
Confirming Corrected and Revised First Amended Jointly Administered Debtors’ Plan of
Liquidation, as Amended [Doc. No. 1673](the “Findings of Fact”). The Debtors expect that the
Plan will become effective on May 1, 2013 (the “Effective Date”). Pursuant to the Confirmation
Order and the Plan, on the Effective Date, the assets, liabilities, and corporate entities of the
Debtors will be substantively consolidated for purposes of the Plan.
7. Pursuant to the Plan, on the Effective Date, Jeffrey L. Hartman (the “Liquidating
Trustee”) will become the duly appointed Liquidating Trustee for the Villalobos Liquidating
Trust, and will succeed to all of the rights and powers of a debtor-in-possession under sections
1107 and 1108 of the Bankruptcy Code, and will be entrusted to administer the Villalobos
Liquidating Trust (the “Trust”), and its assets, and make distributions from the proceeds of the
Trust in accordance with the Plan. Upon the Effective Date, the Liquidating Trustee will become
the real party in interest in this adversary proceeding and will substitute in as the plaintiff.
8. This action is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), (B), (C), (E) and
(O).
9. Venue is proper in this Court under 28 U.S.C. §§ 1408 and 1409 because the
Bankruptcy Cases are pending in the District of Nevada.
10. Pursuant to Local Bankruptcy Rule 7008.1(a), Plaintiffs consent to the entry of
final orders or judgment by the Bankruptcy Court if it is determined that the Bankruptcy Court,
absent consent of the parties, cannot enter final orders or judgment consistent with Article III of
the United States Constitution.
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Parties
11. The Plaintiffs are the Debtors, who bring this adversary proceeding on behalf of
their bankruptcy estates and for the benefit of their bankruptcy estates.
12. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO MANAGEMENT, L.P. (“Apollo Management”) is, and at all times relevant herein was,
a Delaware limited partnership, conducting business in the State of California.
13. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO MANAGEMENT VII, L.P. (“Apollo Management VII”) is, and at all times relevant
herein was, a Delaware limited partnership, conducting business in the State of California.
14. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO INVESTMENT FUND VII, L.P. (“Apollo Investment Fund VII”) is, and at all times
relevant herein was, a Delaware limited partnership, conducting business in the State of California.
15. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO OVERSEAS PARTNERS (DELAWARE 892) VII, L.P. (“Apollo Overseas Partners
892 VII”) is, and at all times relevant herein was, a Delaware limited partnership, conducting
business in the State of California.
16. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO OVERSEAS PARTNERS (DELAWARE) VII, L.P. (“Apollo Overseas Partners DE
VII”) is, and at all times relevant herein was, a Delaware limited partnership, conducting business
in the State of California.
17. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO OVERSEAS PARTNERS VII, L.P. (“Apollo Overseas Partners VII”) is, and at all
times relevant herein was, a Delaware limited partnership, conducting business in the State of
California. This company may be a parallel entity formed for a specific foreign investment
accommodation.
18. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO CREDIT OPPORTUNITY MANAGEMENT LLC (“Apollo Credit Opportunity
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Management”) is, and at all times relevant herein was, a Delaware limited partnership, conducting
business in the State of California.
19. Plaintiffs are informed and believe, and on that basis allege, that defendant
APOLLO CREDIT OPPORTUNITY FUND I, L.P. (“ACOF”) is, and at all times relevant herein
was, a Delaware limited partnership, conducting business in the State of California. General Allegations
20. Whenever in this complaint reference is made to any act of a “Defendant”, such
allegation shall be deemed to mean the acts of the defendants Apollo Management, Apollo
Management VII, Apollo Investment Fund VII, Apollo Overseas Partners 892 VII, Apollo
Overseas Partners DE VII and Apollo Overseas Partners VII, Apollo Credit Opportunity
Management LLC, Apollo Credit Opportunity Fund I, L.P., and each of them, acting individually,
jointly and severally unless otherwise stated. Whenever in this complaint reference is made to
“Apollo” the complaint refers to any one of the Apollo companies or entities that either are a party
to this complaint and/or affiliated in some fashion with a Defendant to this complaint.
Factual Allegations
A. General background.
22. The Bankruptcy Cases were commenced on June 9, 2010 (previously defined as the
“Petition Date”), and on July 12, 2010, the Bankruptcy Court approved the joint administration of
the Bankruptcy Cases under In re Alfred J.R. Villalobos, Bankr. Case No. 3:10-bk-52248-gwz (the
“Villalobos Case”). Unless reference is otherwise noted, all references to the “docket” refer to the
docket in the Villalobos Case.
23. As of the Petition Date, ALFRED J.R. VILLALOBOS (“Villalobos”) was a
resident of Douglas County, Nevada and was the majority owner of each of the three (3) other
jointly administered Debtors - ARVCO CAPITAL RESEARCH, LLC (“ACR”), ARVCO
FINANCIAL VENTURES, LLC (“AFV”) and ARVCO ART, INC. (“AAI”). Villalobos was in
private investment banking for approximately thirty (30) years prior to the Petition Date and, as of
the Petition Date, Villalobos was the managing member and chairman of AFV, which was a
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broker/dealer/member of the Financial Industrial Regulatory Authority (“FINRA”), and the
Securities Investor Protection Corporation. As of the Petition Date, Villalobos held series 7, 63,
24 and 79 securities licenses and was approved as a broker dealer in all fifty states and the
territories of the United States.
24. As of the Petition Date, Villalobos also served as the managing member of ACR
and was the 99% owner of ACR. ACR was formed by Villalobos in December of 2005 and was
an active company until the second quarter of 2008. From its inception until the end of the second
quarter of 2008, ACR provided a variety of services including research, financial analysis and
consulting services to its private equity firm clients. ACR has not operated since the end of the
second quarter of 2008 except to collect receivables and pay obligations.
25. In or about the first quarter of 2008, representatives from Apollo recommended to
Villalobos that he register ACR as a broker-dealer with the SEC and FINRA. Representatives
from Apollo also indicated that they wished Villalobos and his companies to continue working for
Apollo during the registration process in his capacity as a placement agent and consultant for
Apollo. Shortly thereafter, Villalobos was advised by ACR’s professionals that in order to obtain
broker-dealer registration, he would need to first cease the operations of ACR and then form a new
entity that would apply to be a broker-dealer. Subsequently, Villalobos formed AFV.
26. From its inception in July of 2008 until May 5, 2010, AFV provided a variety of
services such as research, financial analysis and consulting services to its private equity firm
clients. AFV has not conducted business since May 5, 2010 and subsequently withdrew its
broker-dealer membership from FINRA and the SIPC.
B. The Debtors’ Placement Agent Services.
27. Pre-petition and in addition to the research, financial analysis, and consulting
services referenced above, ACR and AFV served as a “placement agent” for its private equity firm
clients. Typically, a placement agent, as understood by the contracting parties involved, is an
individual or entity engaged by a company for the purpose of researching, analyzing and
identifying potential institutional investors for the specific manager of the private equity firm
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and/or its fund. As placement agent, ACR would introduce its private equity firm clients’
management teams to prospective institutional investors. From time to time ACR also provided
logistical support when specifically requested to by the manager of the private equity firm, and
such logistical support was provided under the direction of the private equity firm, ACR’s
client(s). Apollo representatives have consistently indicated that Apollo did nothing wrong by
utilizing placement agents such as DLJ, JP Morgan or ACR.
28. For successfully identifying an institutional investor who ultimately invested in the
subject fund, ACR would typically receive a placement agent fee from the private equity firm
client usually in the amount of 1-2% of the funds invested in the specific private equity fund(s).
The fee charged by ACR was typically lower than industry average. The fees would be paid to
ACR by its private equity firm clients and were not paid by the institutional investors that made
the investments. However, the CEO of Apollo Global Management and its predecessors, Leon
Black, typically reserved the right to set the fee at his discretion up through and subsequent to each
fund’s final closing. This resulted in an inability to actually determine the exact amount of the fees
until the closing of the various funds as well as caused several last minute changes to be made to
the acknowledgement of disclosure forms, if any were even requested by Black or the Apollo
companies for a particular fund. It is clear that such forms were in no way ever required under the
law as this is documented by an SEC issued publication.
29. The Debtors are informed and believe, and based thereon allege, that the SEC has
stated that acknowledgment of disclosure forms are not required either for record keeping of a
private equity firm such as Apollo, or for any other reason at the time the relevant facts at issue in
this complaint occurred. Therefore, Apollo typically did not request such forms from ACR prior
to paying ACR.
30. The placement agent relationship between ACR and Apollo was, at times,
memorialized in placement agent agreement letters which letters included fees that could be
changed at Mr. Black’s discretion. With respect to the accounts receivable at issue in this
complaint, the amounts due and owing to ACR were determined prior to or at the final closings
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and were agreed to between the parties. The institutional investors were never a party to any
agreements, written or verbal, between ACR, on the one hand, and Apollo, on the other hand.
With respect to the written agreements, an authorized representative of ACR would sign the
placement agent agreement and/or letter on behalf of ACR, and a similarly authorized
representative would sign on behalf of Apollo.
31. The written placement agent agreements which are the subject of this complaint
were memorialized in written letters dated July 1, 2007 for the Apollo Investment Fund VII
agreement and June 19, 2008 for the ACOF agreement respectively. In the Apollo Investment
Fund VII, L.P. and the ACOF I agreements, the parties specifically set forth the fact that ACR
was not authorized to sell securities to any person or party, that ACR did not have the ability to
bind Apollo entities in any way and that ACR could not accept subscriptions or participate in any
selling of such securities but rather that ACR would merely act to serve as one of Apollo’s many
placement agents and would assist Apollo by using its reasonable best efforts to assist in
identifying institutional investors for Apollo. The language of the agreements clearly states that
“[ACR] shall not offer or sell Interests to any person.”
32. Furthermore, Apollo represents in both agreements that ACR can use and
reasonably rely on the Private Placement Memorandum and other provided Apollo data without
being responsible for having independently verified the information contained therein. ACR
could not and did not negotiate terms or conditions relating to any of the agreements entered into
between Apollo and its investors.
33. In the section of the agreement regarding fees, the Apollo Investment Fund VII
placement agent letter/agreement states that “Apollo may terminate this Agreement at any time if
it determines not to proceed with the offering of Interest to prospective investors as contemplated
herein.” The agreement also clearly states that “Notwithstanding the termination of ACR’s
engagement hereunder, payment of any Fees and reimbursement of any Expenses accrued and/or
owing as of the date of termination shall nevertheless be made in accordance with the terms
hereof.
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34. Apollo has never terminated the subject Apollo Investment Fund VII placement
agent letter/agreement nor the ACOF placement agent letter/agreement.
35. In the Apollo Investment Fund VII placement agent letter/agreement, Apollo
claims status as a Registered Investment Advisor under the U.S. Investment Advisers Act of 1940,
as amended (“the “Advisers Act”). As such, it adopted and published the Apollo Global
Management, LLC Code of Business Conduct and Ethics. Under its conduct code, Apollo
represents to all persons that all of its business will be “conducted in accordance with applicable
federal, state and local laws and regulations, the applicable laws and regulations of any foreign
jurisdictions where we operate, … . .in a manner that will reflect a higher standard of ethics. …
Compliance with the law does not comprise our entire ethical responsibility; rather, it is a
minimum, absolutely essential condition for performance of our duties. Perceived pressure from
supervisors or demands due to business conditions are not excuses for violating the law.” “Gifts
to government officials or public employees who are not members of your immediate family given
in your professional or personal capacity” are featured in the conflict of interest provisions of this
ethical code. Apollo clearly warns that “Civil laws, criminal laws and regulations vary by
jurisdiction regarding interactions with public officials.” See, the pdf of the above code of ethics
on Apollo’s Website (http://ir.agm.com/phoenix.zhtml?c=214560&p=irol-govhighlights). Similar
representations regarding Apollo’s compliance with the U.S. Investment Company Act of 1940
are included in the ACOF agreement as well.
36. Despite the representation in the agreements and despite the language of the Apollo
Code of Ethics specifically regarding gifts, Apollo failed to comply with its reporting obligations
when dealing with its largest institutional investor, the California Public Employees' Retirement
System (“CalPERS”). Apollo, a vendor/contractor of CalPERS, failed to abide by the duties and
obligations as set forth in the Schiff Act of 1998 as introduced by SB 1753 and which was
sponsored by CalPERS and which added language to California Education Code §22363 as well
as to the California Government Code and required reporting to CalPERS of any gifts aggregating
$50 or more that the vendor or contractor has made during the preceding calendar year to any
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board member of officer or employee of the system. Failure to disclose is highly important as, in
the event gifts aggregating $50.00 or more are given by a vendor or contractor to any board
member or officer, such an act could result in a disqualification of the contractor or the vendor
from consideration when an investment is being presented to CalPERS as an institutional investor
by Apollo. Villalobos/ACR always sent any/all invoices for expenses and costs expended when
working for Apollo on CalPERS matters to Apollo for reimbursement and all expenses were
always paid in due course without exception by Apollo.
37. ACR relied upon Apollo’s representation both as a Registered Investment Advisor
and a party to the contract that Apollo would abide by the law. If Apollo had fulfilled its
obligations as a vendor/contractor of CalPERS under the Schiff Act, then ACR would not have
sustained damages resulting from having to defend itself in the Santa Monica State Court Action
for securities fraud, nor the SEC action for securities fraud, nor would it have had to declare
bankruptcy and had to incur the resultant attorneys’ and other professional fees incurred due to
that process. Had Apollo properly disclosed the gifts it gave to such CalPERS persons such as
Leon Shahinian, which were featured in the Report of the CalPERS Special Review and contained
in the allegations of the CA State Court Action (defined below), such reports and lawsuits would
not have ensued and caused ACR damages. See, Report of the CalPERS Special Review written by
Philip S. Khinda, Donald E. Wellington and Ellen S. Zimiles (March 2011) located at